utility of consuming five bottles of fruit juice per day is the total
satisfaction that those five juices provide. The marginal utility of the fifth
juice consumed is the additional satisfaction provided by the
consumption of that fifth juice each day.
Diminishing Marginal Utility
The central hypothesis of utility theory, often called the law of diminishing
marginal utility, is as follows:
The utility that any consumer derives from successive units of a particular product consumed
over some period of time diminishes as total consumption of the product increases (holding
constant the consumption of all other products).Consider your utility from using clean water, for drinking, bathing,
washing your dishes and clothes, and all its other purposes. Some
minimum quantity is very important and you would, if necessary, give up
a considerable sum of money to obtain that quantity of water. The total
utility you receive from that basic quantity of water is very high. You will,
of course, consume more than this bare minimum, but your marginal
utility of successive litres of water used over a period of time will decline
steadily.
We will consider evidence for this hypothesis later, but you can convince
yourself that it is at least reasonable by asking a few questions. How
much money would be needed to induce you to reduce your consumption
of water by one litre per week? The answer is very little. How much would
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